Bonus Depreciation Legislation Passes House, but Faces Hurdles

On July 11, 2014, the House passed legislation permanently extending bonus depreciation. The Senate is expected to advance a temporary extension, rather than a permanent one, so the stage is set for further deliberation. The President has threatened to veto the measure if it makes it through Congress.

History

Enacted as a temporary measure to help the US economy, bonus depreciation was originally set to expire on December 31, 2008. It has been extended annually by Congress, until 2013, when it was allowed to expire. Under the bonus depreciation measure, the deductible first-year percentage was 50% (in 2012 and 2013). This means taxpayers could deduct 50% of the cost of the asset in the first year, and the remaining cost could be deducted over several years using regular depreciation or Section 179 expensing. 

Many in Congress and in the public have been clamoring for another extension or for bonus depreciation to be made permanent. 

The House-Passed Measure

As passed by the House, the measure sets bonus depreciation at 50% in the first year and would be renewed retroactively and expanded to retail stores that are owner-occupied as well as those that are leased.

Along party lines, Republicans say a permanent tax benefit would spur investment, while Democrats question the value of making a temporary benefit permanent.

The Cost

The congressional Joint Committee on Taxation (JCT) reports that $262.9 billion of the bill’s $287.4 cost would come directly from bonus depreciation and that $24.5 billion would come from accelerating the AMT credit in lieu of bonus depreciation.

The measure has received support from business leaders and organizations, including Financial Executives International and Randall Stephenson, chairman and CEO of AT&T, Inc. and chairman of Business Roundtable, who said, “Today’s House vote is a positive step towards accelerating higher business investment and growth, which are needed to restore the productive capacity of the US economy and propel job creation.”

Criticism came from Americans for Tax Fairness, whose statement said the legislation is “hypocritical, ineffective and grossly unfair.”

Stay tuned to Smith and Howard for updates as Congress deliberates.

Sources: Bloomberg BNA Tax Report, No. 134; FEI Daily